study group 1.3 gas rent and mineral property rights 2 woc 1...

Study Group 1.3

Gas Rent and Mineral Property Rights

2nd WOC 1 MeetingRio de Janeiro

18-21 February 2013

Previously in Gas Rent and Mineral Property Rights...

Contractual models

There are more petroleum fiscal systems than countries (Johnston, 2012)

Ownership is the most important element of distinction

Similar cash flow results can be obtained, but

• PSA (PSC) quickly growing in lieu of concession contracts - controversy

• Service contracts remain limited to a few countries

Concession, production sharing and service contracts

Fiscal instruments

Regressive

• Royalties, bonuses• Non-profit related; the lower

the profitability the higherthey become

Progressive

• Income taxes, specialpetroleum (gas) taxes

A criticism to royalties

Provide benefit to the government at the earliest stages of production, but

Can cause premature abandonment (inefficiency), as production tends to halt when marginal costs reach market prices

Royalties are being discarded in favour of higher taxes

Décio Barbosa, Royalties: Use com Moderação inMonitor IBP, January 2011, Year III, Number 1, pp. 2-3.

Reduction in recoverable reserves

Case study

Recoverable reserves of 850 million barrelsExploration in two yearsExploitation in five yearsIn production for 20 years20 production wells10 injection wellsFPSO 200 kbpdRig leasing at US$ 500,000/dayDecline rate of 10% p.a.Well cost US$ 100 million

United Kingdom

Corporation tax 30% (ring fence rate for O&G E&P)Supplementary charge rate now at 32% Petroleum revenue tax discontinued in new areasCapital allowances• Accelerated depreciation• Immediate write-off for exploration costs

Investment incentives• Losses can be carried forward indefinitely• R&D incentive

Norway

No royalties, bonuses or production sharingIncome tax of 28%Additional special O&G upstream tax of 50%

• Applies to the Norwegian Continental Shelf and onshore areas• Cannot be deducted for purposes of income tax

Capital allowances• Offshore investments depreciated linearly over six years• Uplift of 30% applies to the special O&G tax

• 7,5% per year in four years

Investment incentives• Losses can be carried forward indefinitely with interest rates

nominated by the Ministry of Finances (1.9% in 2011)No ring fencing

Production sharing

Mineral rights granted exclusively to the winner of a bidding process to explore, develop and sell part of the productionInvestor receives part of the oil produced as a compensation for its risks, after cost compensationNational oil company may have an administrative roleWinner must execute working programme (seismic work, production pilots, drilling activity, etc)

Angolan regime for ultra deep waters

Signature bonus• US$ 10 million non-recoverable, unshared)

Training fee• US$ 200 thousand during exploration and development• US$ 0.15/bbl during production period

Social contribution• US$ 4 million at start-up, non-recoverable

State share (Sonangol)• 20% carried through to commercial discovery, with repayment ofpast exploratory costs by Sonangol

Cost recovery 50%, 4 years (20% uplift development)Income tax 50%Profit sharing

• Calculated quarterly

IRR (%) Profit share

< 10.0 70

10.0-12.5 55

12.5-17.5 45

17.5-20.0 30

> 20% 20

Granting Documents

Upstream Contract Models with Governments

Adauto Carneiro PereiraPETROBRAS

For IGU Rio de Janeiro2013

Mozambique, Tanzania and Kenya

For Deepwater Gas Project,• Mozambican fiscal regimes are more attractive than those of Tanzania and Kenya.

• Tanzanian and Kenyan fiscal regimes are not well organized.

To encourage deepwater gas projects in Tanzania and Kenya, more preferable regimes for developers are required.However, developers in Tanzania are

Demetrius, PetrobrasBrazilian fiscal system

Questionnaire

Question

Totally

disagree

Partially

disagree

Neutra /

Non-appl.

Partially

agree

Totally

agree

1In my country the fiscal system for the production of oil and gas is

modern and effective

2 A different fiscal system should be developed specifically for gas

3Associated and non associated gas should have a different set of

fiscal instruments

4Foreign investment is important for the production of gas in my

country

5The current fiscal system that we have is efficient to attract

investments to the upstream segment of the gas industry

6Production sharing contracts tend to replace concession and service

contracts in the future

7Royalties constitute an old fashioned fiscal instrument, whose use

tend to disappear in the long term

8 In my country bidding processes take place regularly

9In my country direct negotiations with government authorities are

possible

Thank you!